United States

Overnight, the 10-year US government bond yield climbed 8.7 basis points to 4.494% while the 2-year rate declined -3.2 basis points to 5.144%, likely catching a safe-haven bid as risk assets fell. Equities were in risk-off mode with the S&P500 falling -1.64% along with the Nasdaq Composite -1.82%, Dow Jones -1.08% and Russell 2000 -1.56% with the VIX spiking 15.85% to 17.54. The VIX, known as the “fear gauge” is a good measure of sentiment, however, we prefer to look at the structure of the VIX curve, with short-term volatility expectations rising compared with longer-dated expectations. While not yet in backwardation, where short-term volatility measures are greater than long-term measures, which signals a significant degree of fear and can often present buying opportunities, it is getting closer to that level as shown on the following chart.

S&P500 & VIX Curve

Helping to drive longer-dated yields higher and equities lower as further signs that the US labour market remains robust for now and will need higher interest rates for longer. Initial jobless claims for the week ending September 16^th were better-than-expected at 201k vs 225k forecast, with continuing claims at 1.662m vs 1.695m forecast. While markets are reacting to the Federal Reserve’s updated projections from Wednesday, and the potential for restrictive policy for longer amid higher commodities, strength in the US labour market and economy by historical precedents are supportive for equities as companies grow earnings. This is a break from recent years amid persistently low inflation, where “bad news was good news” as central banks were the only game in town and equities became decoupled with the economy. A return to more normal monetary policy following the fiscal spending in the wake of COVID has potentially broken this cycle and suggests a return to more normal historical conditions.

Europe

European equities were lower overnight following a split decision that saw the Bank of England leave interest rates unchanged at 5.25% compared to forecasts of a 0.25% increase. 5 out of the 9 voting members voted to leave rates unchanged, highlighting the split between policymakers amid an uncertain outlook given complications facing the UK economy as it deals with the implications of Brexit and high inflation following the pandemic. Governor Bailey said it was too soon to consider cutting interest rates, noting “We can’t be complacent about this…our job is to get inflation back down to the 2% target and to sustain it there. So, the job isn’t done yet”. Data for the Eurozone overnight showed consumer confidence weakened more than expected for September to -17.8 from -16 previously compared to estimates of -16.5. The Euro Stoxx 600 fell -1.30% along with the DAX -1.33%, CAC -1.59%, and FTSE100 -0.69% shielded by a -0.37% fall in the Pound. Next, on investors’ radar is a policy decision from the Bank of Japan at 13:00 AEDT today.

Eurozone Consumer Confidence (MoM)

*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.

Commodities

Oil prices are weaker overnight with WTI down -0.72% while Brent is -0.25% lower. Iron ore futures in Singapore sank -3.58% on Thursday and are a further -0.41% lower this morning at US$117 along with copper which is -2.14% lower. Gold declined -0.53% to US$1,920 an oz while silver climbed 0.7% to US$23.40 and Bitcoin is -1.82% lower at US$26,601.

Economic Calendar

22nd September

Australian PMI (MoM Sep) 09:00

Japan Inflation (YoY Aug) 09:30

BOJ Rate Decision 13:00

Eurozone PMI (MoM Sep) 18:00

US PMI (MoM Sep) 23:45